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HSH Nordbank AG, a German regional lender bailed out during the financial crisis, sued Goldman Sachs Group Inc. and Morgan Stanley over more than $634 million in residential mortgage-backed securities, Bloomberg News reported yesterday. HSH Nordbank accused Goldman Sachs and Morgan Stanley, both based in New York, of making "material misrepresentations and omissions" about the underwriting standards used to issue mortgage loans that were pooled together into the securities, according to documents filed Aug. 24 in New York State Supreme Court in Manhattan. HSH Nordbank sued Goldman Sachs over $110 million in mortgage securities and Morgan Stanley over $524 million of the investments, according court papers.

Wilmington Trust Co. is taking aim at Capitol Bancorp Ltd.'s bankruptcy case, calling for the appointment of a creditor group to delve deeper into the bank-holding company's proposed route to reorganization, Dow Jones DBR Small Cap reported today. Capitol Bancorp, a struggling Michigan company that has community banks scattered across 10 states, sought bankruptcy protection earlier this month with a restructuring proposal already in hand. Wilmington Trust said in a court filing that only $17 million of some $151 million in holders of trust-preferred securities cast their votes on the reorganization plan, leaving 89 percent having not weighed in.

The M&T Bank Corporation has agreed to buy Hudson City Bancorp, expanding M&T's reach on the East Coast, the New York Times DealBook blog reported yesterday. Under the terms of the deal, M&T will pay roughly $3.7 billion in cash and stock. The price represents a premium of about 16 percent to Hudson City's market value on Friday. With the acquisition, M&T will bolster its presence in important markets including New York, New Jersey and Connecticut. In all, M&T will add 135 branches and $25 billion in deposits.

Banks with more than $10 billion in assets may get more time from U.S. banking regulators to institute internal stress testing required by the Dodd-Frank Act, Bloomberg News reported yesterday. The regulators proposed rules in December and January to require the big banks -- holding companies under the Federal Reserve and national banks under the Office of the Comptroller of the Currency -- to start self-testing their portfolios against adverse scenarios annually. The proposals, which initially called for banks to conduct tests this year, may be revised with a September 2013 deadline, the regulators said in coordinated statements. The extension would apply to banks between $10 billion and $50 billion in assets, according to the Federal Reserve, OCC and the Federal Deposit Insurance Corp. The OCC said that banks with more than $50 billion may still have to run tests this year, with the agency reserving the right to let them "delay implementation on a case-by-case basis where warranted."

Banks being probed for interest-rate manipulation face potentially tens of billions of dollars in claims from dozens of lawsuits in the U.S. from cities, insurers, investors and lenders who say they were hurt by the allegedly manipulated rates, the Wall Street Journal reported today. The allegations come from parties as varied as individual investors and institutions like Charles Schwab Corp. that say that they were cheated out of returns on bonds with artificially low rates, to cities and hedge funds with financial contracts squeezed by traders who allegedly colluded with each other. The exact number of cases is not clear, but they have been piling up for months, a review of federal- and state-court filings by the Wall Street Journal shows. Barclays PLC's settlement with U.S. and U.K. regulators in June for about $450 million triggered a burst of new lawsuits against the British bank and other financial institutions now under investigation, including Bank of America Corp., Citigroup Inc. and JP Morgan Chase & Co.

Former brokers of Bank of America Corp.'s Merrill Lynch & Co. unit asked a federal judge to approve a $40 million settlement in a lawsuit over deferred compensation, Bloomberg News reported on Friday. Charles McCallum, a lawyer for the brokers, told U.S. District Judge Alison Nathan on Friday that the proposed settlement would cover more than 1,400 people. The judge said she will rule later on preliminary approval. The lawsuit, filed by Scott Chambers and John Burnette, relates to Bank of America's 2009 purchase of the investment firm. The brokers alleged in their complaint that they were entitled to cash distributions stemming from a change in control of Merrill Lynch.

Credit Suisse Group AG was sued in New York state court by Sealink Funding Ltd. over its investment in $180 million worth of residential mortgage-backed securities, Bloomberg News reported yesterday. Sealink accuses Zurich-based Credit Suisse of making material misrepresentations and omissions regarding the characteristics of mortgage loans that were pooled together into the securities, according to documents filed in New York state Supreme Court yesterday. Sealink was created to manage Landesbank Sachsen AG's riskiest assets after the German lender almost collapsed. It has filed lawsuits over investments in mortgage bonds against banks including Goldman Sachs Group Inc., Deutsche Bank AG, Bank of America Corp. and JPMorgan Chase & Co.

Squeezed by new rules that make debit cards less profitable and awash in deposits that they must put to work, regional banks and community lenders are making a big push into credit-card lending, often diving back into a business they had exited years before amid the onslaught of bigger players, the Wall Street Journal reported today. Consumers have been paring the use of cards while they get their finances in order, while large banks have been shrinking card portfolios to meet new capital requirements, potentially giving smaller lenders an opening. Among the banks making a new push to sell credit cards: M&T Bank Corp. of Buffalo, N.Y.; Regions Financial Corp. of Birmingham, Ala.; Sovereign Bank, a unit of Banco Santander SA of Spain; and Huntington Bancshares Inc. of Columbus, Ohio. One of the big reasons behind the push by smaller banks is a desire on the part of lenders to sell more products to existing customers. Such marketing is one way banks hope to increase revenue in a world in which interest rates are likely to be stuck near zero for the foreseeable future. The Fed has said it plans to keep rates at "exceptionally low levels" at least through late 2014.

Fannie Mae and Freddie Mac were warned by Massachusetts Attorney General Martha Coakley to comply with a new state law aimed at reducing foreclosures by requiring mortgage loan modifications, Bloomberg News reported yesterday. The companies must offer “commercially reasonable” changes under legislation signed into law Aug. 3 by Governor Deval Patrick, Coakley’s office said yesterday. "We expect Fannie Mae and Freddie Mac, like all creditors, to comply with these statutory obligations," Coakley said Federal Housing Finance Agency. "We expect that Fannie Mae and Freddie Mac will pursue common-sense loan modifications for borrowers when the economic benefits of a modified loan exceed the significant losses anticipated at foreclosure."
http://www.bloomberg.com/news/print/2012-08-23/fannie-freddie-must-obey…

To read the text of the new Massachusetts mortgage law, please click here:
http://www.mass.gov/legis/journal/desktop/Current%20Agenda%202011/H4323…

The Federal Reserve Bank of New York yesterday sold the last toxic assets it acquired from the bailout of American International Group Inc., the Wall Street Journal reported today. The regional Fed bank said that it reaped $6.6 billion in profits from selling complex mortgage securities that it took on in late 2008 to stem AIG's cash bleed. The U.S. Treasury and Federal Reserve together committed up to $182.3 billion to support AIG at the height of the crisis, and at its peak the New York Fed lent over $90 billion to the company and investment vehicles that purchased AIG-linked assets. The regional Fed bank has been fully repaid on its various loans.